China factory growth eases, adds to recovery risk

Wed May 1, 2013 11:46pm EDT
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BEIJING (Reuters) - China's factory-sector growth eased in April as new export orders fell for the first time this year, a private survey showed on Thursday, suggesting the euro zone recession and sluggish U.S. demand may be risks to China's economic recovery.

The final HSBC Purchasing Managers' Index (PMI) dropped to 50.4 in April from March's 51.6 and was largely in line with a flash reading last week of 50.5. Fifty divides expansion from contraction on a monthly basis.

China's official PMI on Wednesday painted a similar picture, falling to 50.6 in April from an 11-month high of 50.9 in March as new export orders fell.

The pull back in both the official and HSBC PMIs are likely to add to concerns over risks to China's economy in the short term, although most analysts expect a steady and gentle recovery this year, aided by government support.

"The slower growth of manufacturing activity in April confirmed a fragile growth recovery of the Chinese economy as external demand deteriorated and renewed destocking pressures built up," said Qu Hongbin, chief China economist at HSBC.

"The looming deflationary pressures also suggest softer overall demand conditions. All this is likely to weigh on the labor market, which is likely to invite more policy responses in the coming months."

A string of global data, including lower-than-expected U.S. economic growth figures and record unemployment in the euro zone, has dented optimism seen at the start of the year that the world economy was picking up.

China's economic growth unexpectedly stumbled in the first quarter, slipping to 7.7 percent versus 7.9 percent in the previous three month period, as factory output and investment slowed.

Analysts polled by Reuters after the release of first quarter GDP expected China's economic growth to accelerate to 8.0 percent in the second quarter. They forecast growth for the full-year would rise to 8.0 percent from 7.8 percent in 2012, which was the weakest pace since 1999.   Continued...

A worker wearing protective glasses welds steel products at a heavy equipment manufacturing factory in Luoyang, Henan province May 1, 2013. REUTERS/China Daily